Federal court lashes out at use of prior salary history

In January, California AB 168 went into effect, prohibiting employers of any size from asking job applicants about their prior salary history. The goal of the law is to narrow the gender wage gap by eliminating consideration of prior salary in the hiring process.

On April 9, the 9th Circuit, sitting En Banc (all judges sitting in decision), held in Rizo v. Yovino [Rizo] that prior salary history cannot justify a wage differential between male and female employees under the federal Equal Pay Act, a federal law similar to California’s AB 168.

Under the Equal Pay Act, an employer is prohibited from paying their male and female employees different wages for “substantially equal work.” Interestingly, the Act provides that if a plaintiff files suit and can demonstrate that such a wage disparity exists in the workplace, they need not prove that their employer had a discriminatory intent.

However, the Equal Pay Act includes four statutory exceptions to providing unequal pay, each of which may be used as an affirmative defense against claims for violations of the Act: 1) a seniority system ; 2) a merit system; 3) a system which measures earnings by quantity or quality of production; or 4) any other factor other than sex.

Aileen Rizo was hired as a math consultant by the Fresno County Office of Education. Rizo’s salary upon joining the county was determined by a standardized formula that included taking the new employee’s prior salary, adding 5 percent, and placing the new employee in a corresponding salary schedule/ “step” category.

After working for the county for approximately three years, Rizo learned male colleagues hired after her were paid more and placed on higher “steps” of the salary schedule. Rizo filed suit against the county, claiming a violation of the Equal Pay Act. The county then brought a dispositive motion as to Rizo’s claims, contending that consideration of Rizo’s prior salary was a “factor other than sex,” an affirmative defense under the Equal Pay Act. Agreeing with the county, the trial court granted its dispositive motion.

However, on appeal, the 9th Circuit concluded that a “factor other than sex” is limited to legitimate, job-related factors such as a prospective employee’s experience. In pointing to the original purpose of the Equal Pay Act, the 9th Circuit stated “[i]t is inconceivable that Congress, in an Act the primary purpose of which was to eliminate long-existing ‘endemic’ sex-based wage disparities, would create an exception for basing new hires’ salaries on those very disparities…”

The 9th Circuit did not set a blanket rule that the use of prior salary history is a per se violation of the Equal Pay Act and conceded that it may be reasonable in individualized salary negotiations.

However, the language in the ruling was so strongly opposed to the use of prior salary history that it seems a risky proposition for any employer to use prior salary history in determining an employee’s pay.